7 ms·

What would you do if you were a board member of multiple companies and you found out their bank was financially unsound and couldn't do normal bank stuff? Woul

What would you do if you were a board member of multiple companies and you found out their bank was financially unsound and couldn't do normal bank stuff? Would you say nothing and hope nobody else notices? Good luck with that. That just means your companies get screwed. What if you get away with being silent, nobody else noticed, and the bank gets bigger and fails even more spectacularly later in the year? Wouldn't that be worse? Wouldn't you then be criticized for not speaking up when you knew about the problem? Would you try to band together with other investors to save the bank? Worth a try, but that means you have to tell other people there is a problem and trust that not a single one of them would start a bank run. A lot of people have an axe to grind against Peter Thiel but in this case he did the only rational thing. If he had done anything else he would have been blamed too, because some people just don't like him. I haven't seen anyone demonstrate a reasonable alternative for how a rational person would act, knowing what he knew at the time.

schmichael 4y ago
> What would you do if you were a board member of multiple companies and you found out their bank was financially unsound and couldn't do normal bank stuff? Was there any evidence that they couldn't do "normal bank stuff"? AFAIK SVB still had ample avenues to raise liquidity before the bank run Thiel orchestrated. SVB's stock would have suffered immensely, but their operations and deposits would have been fine as far as I can tell.
- twblalock 4y ago
  > Was there any evidence that they couldn't do "normal bank stuff"? His fund had problems transferring money and that's why he noticed something was wrong. Someone else would have had similar problems, and would have noticed, even if Thiel didn't act.
  - kelnos 4y ago
    Do you have more information on this? From what I understand, SVB had more than enough cash (yes, cash) on hand to handle any money transfer Thiel's fund could have thrown at it.
    - twblalock 4y ago
      Here is one of them from Friday: https://news.yahoo.com/thiel-founders-fund-withdrew-millions-005223787.html https://news.yahoo.com/thiel-founders-fund-withdrew-millions... > On Thursday, as the bank was beginning to unravel, the firm started what’s known as a capital call. That’s a run-of-the-mill activity in the venture capital world, in which a VC firm asks its investors, or limited partners, to send it money in order to make investments in startups — the core function of most VC firms. It began by asking those backers to transfer the funds to accounts at SVB, as it has done for years, the person said. > But the firm learned that its limited partners were encountering issues using SVB services as they tried to transfer the funds — they weren’t immediately going through as expected, the person said.
      - tveita 4y ago
        So they were having trouble getting money into the bank? I'd like to understand how all these startups came to use SVB in the first place and what part the VCs played in that. I've seen people here say that they were required to bank exclusively with SVB, did the VCs encourage those terms? The story doesn't look that great if Thiel told them to put the money there before he told them to take it out all at once.
cjtrowbridge 4y ago
SVB was never "unsound." They had plenty of assets to cover all their deposits and plenty of cash to cover normal withdrawals. If not for people like Peter calling for a bank run, SVB would still be in business today.
- twblalock 4y ago
  Nope, someone else would have started a run.
  - cjtrowbridge 4y ago
    By that logic, all banks are unsound. It's not turtles all the way down, and pretending the guilty party is blameless because "someone else would have done it" is nonsense.
- kelnos 4y ago
  > They had plenty of assets to cover all their deposits No, they did not. If they did, then they could have immediately sold all their assets during this bank run, and there would have been no need for the FDIC to step in. If they could not do that, then, by definition, they did not have enough assets to cover all deposits.
  - caddemon 4y ago
    I mostly agree, but there are cases where someone can have enough assets but it's such a large amount of something that word gets out they have to offload it, and then good luck selling it all at anything but a big discount, then not too long after price does rebound. That is obviously not a situation that one gets into without making some mistakes, but I think this is distinctly worse, though some are trying to act like it's the same. The actual fair market value of what they held, even removing SVB from the situation entirely, was down a lot. And it was down for very logical and predictable reasons, and will almost certainly never rebound.
  - c23gooey 4y ago
    They had the assets. Just that a good portion of them aren't available to be sold immediately
chii 4y ago
As long as Peter Thiel had nothing to gain by starting a bank run (which, by all logic, seems likely), then he cannot be blamed for talking about the bank's risk and position which ultimately caused a run.
- wstuartcl 4y ago
  A ton of capital at the ready to offer bridge loans at shark rates or for blood equity for companies panicking and impacted by the same act of gathering those funds out of SVB to crash it seems like motive -- only time will tell.
slg 4y ago
There are steps between do nothing and tell everyone to pull out all their money. It doesn't seem like they spent much effort exploring that middle ground.
- munk-a 4y ago
  Wouldn't reporting this to the FDIC through a private channel probably be a very reasonable first step? At least to me that feels like a good initial reaction to having stability doubts about a bank and I assume someone like Thiel making a report would be treated quite seriously.
  - bko 4y ago
    You're assuming the FDIC is a person who you can just ring up and have a talk with. This is a large bureaucratic organization that moves at a glacial pace. Consider that the SEC mishandled five separate inquiries into Madoff as early at 1992. https://www.theguardian.com/business/2009/sep/02/bernard-madoff-sec-report https://www.theguardian.com/business/2009/sep/02/bernard-mad...
    - munk-a 4y ago
      Yea - when doing stuff at the scale of billions of dollars I think a fair amount of caution and care is warranted. As far as I'm aware these are the people best placed in the government to deal with this issue. The SEC might also be an option (if you were primarily concerned about poor investment choices by the bank) but considering it involves a bank I think alerting the FDIC first and then allowing them to pursue the SEC if they warrant it feels pretty reasonable.
- twblalock 4y ago
  Ok, what are those steps?
  - slg 4y ago
    From a high level perspective, mitigate the short term risk, understand the problem, and work on a long term solution. Short term risk can be mitigated by ensuring your companies have enough non-SVB cash on hand to make payroll. The seriousness of the problem can be better understood by communicating with other involved parties including the bank, the government, investors, and clients. A long term solution can include investing in the bank, buying assets from the bank, coordinating with other VCs to ensure no one panics and a bank run won't happen. He made a bad situation worse by jumping straight to pulling all his companies' money and telling everyone else to do the same. He basically dumped water on a grease fire then ran out of the house screaming without ever bothering to look for a fire extinguisher.
hn2017 4y ago
The apologists here are not surprising
mattlutze 4y ago
> What would you do if you were a board member of multiple companies and you found out their bank was financially unsound and couldn't do normal bank stuff? Founders Fund has investments in some of the largest internet age companies that exist. Airbnb, DeepMind, Lyft, Facebook, Flexport, Palantir Technologies, SpaceX, Spotify, Stripe, Wish, Neuralink, Nubank, Twilio. A call for them to move their money out of SVB meant putting pressure out on a massive percentage of SVB's customers by value. It's not clear at all from news reports why Founders Fund put the call out. Fast Comapny's article notes that SVB had north of 32B in net assets before the run that Thiel's fund started. IF FF had the facts wrong, this collapse would demonstrate the effect of a few poeple's outside influence in SV, and should be a warning to the broader industry of the power that these investment vehicles are wielding.

schmichael 4y ago

> What would you do if you were a board member of multiple companies and you found out their bank was financially unsound and couldn't do normal bank stuff? Was there any evidence that they couldn't do "normal bank stuff"? AFAIK SVB still had ample avenues to raise liquidity before the bank run Thiel orchestrated. SVB's stock would have suffered immensely, but their operations and deposits would have been fine as far as I can tell.

twblalock 4y ago
> Was there any evidence that they couldn't do "normal bank stuff"? His fund had problems transferring money and that's why he noticed something was wrong. Someone else would have had similar problems, and would have noticed, even if Thiel didn't act.
- kelnos 4y ago
  Do you have more information on this? From what I understand, SVB had more than enough cash (yes, cash) on hand to handle any money transfer Thiel's fund could have thrown at it.
  - twblalock 4y ago
    Here is one of them from Friday: https://news.yahoo.com/thiel-founders-fund-withdrew-millions-005223787.html https://news.yahoo.com/thiel-founders-fund-withdrew-millions... > On Thursday, as the bank was beginning to unravel, the firm started what’s known as a capital call. That’s a run-of-the-mill activity in the venture capital world, in which a VC firm asks its investors, or limited partners, to send it money in order to make investments in startups — the core function of most VC firms. It began by asking those backers to transfer the funds to accounts at SVB, as it has done for years, the person said. > But the firm learned that its limited partners were encountering issues using SVB services as they tried to transfer the funds — they weren’t immediately going through as expected, the person said.
    - tveita 4y ago
      So they were having trouble getting money into the bank? I'd like to understand how all these startups came to use SVB in the first place and what part the VCs played in that. I've seen people here say that they were required to bank exclusively with SVB, did the VCs encourage those terms? The story doesn't look that great if Thiel told them to put the money there before he told them to take it out all at once.

cjtrowbridge 4y ago

SVB was never "unsound." They had plenty of assets to cover all their deposits and plenty of cash to cover normal withdrawals. If not for people like Peter calling for a bank run, SVB would still be in business today.

twblalock 4y ago
Nope, someone else would have started a run.
- cjtrowbridge 4y ago
  By that logic, all banks are unsound. It's not turtles all the way down, and pretending the guilty party is blameless because "someone else would have done it" is nonsense.
kelnos 4y ago
> They had plenty of assets to cover all their deposits No, they did not. If they did, then they could have immediately sold all their assets during this bank run, and there would have been no need for the FDIC to step in. If they could not do that, then, by definition, they did not have enough assets to cover all deposits.
- caddemon 4y ago
  I mostly agree, but there are cases where someone can have enough assets but it's such a large amount of something that word gets out they have to offload it, and then good luck selling it all at anything but a big discount, then not too long after price does rebound. That is obviously not a situation that one gets into without making some mistakes, but I think this is distinctly worse, though some are trying to act like it's the same. The actual fair market value of what they held, even removing SVB from the situation entirely, was down a lot. And it was down for very logical and predictable reasons, and will almost certainly never rebound.
- c23gooey 4y ago
  They had the assets. Just that a good portion of them aren't available to be sold immediately

chii 4y ago

As long as Peter Thiel had nothing to gain by starting a bank run (which, by all logic, seems likely), then he cannot be blamed for talking about the bank's risk and position which ultimately caused a run.

wstuartcl 4y ago
A ton of capital at the ready to offer bridge loans at shark rates or for blood equity for companies panicking and impacted by the same act of gathering those funds out of SVB to crash it seems like motive -- only time will tell.

slg 4y ago

There are steps between do nothing and tell everyone to pull out all their money. It doesn't seem like they spent much effort exploring that middle ground.

munk-a 4y ago
Wouldn't reporting this to the FDIC through a private channel probably be a very reasonable first step? At least to me that feels like a good initial reaction to having stability doubts about a bank and I assume someone like Thiel making a report would be treated quite seriously.
- bko 4y ago
  You're assuming the FDIC is a person who you can just ring up and have a talk with. This is a large bureaucratic organization that moves at a glacial pace. Consider that the SEC mishandled five separate inquiries into Madoff as early at 1992. https://www.theguardian.com/business/2009/sep/02/bernard-madoff-sec-report https://www.theguardian.com/business/2009/sep/02/bernard-mad...
  - munk-a 4y ago
    Yea - when doing stuff at the scale of billions of dollars I think a fair amount of caution and care is warranted. As far as I'm aware these are the people best placed in the government to deal with this issue. The SEC might also be an option (if you were primarily concerned about poor investment choices by the bank) but considering it involves a bank I think alerting the FDIC first and then allowing them to pursue the SEC if they warrant it feels pretty reasonable.
twblalock 4y ago
Ok, what are those steps?
- slg 4y ago
  From a high level perspective, mitigate the short term risk, understand the problem, and work on a long term solution. Short term risk can be mitigated by ensuring your companies have enough non-SVB cash on hand to make payroll. The seriousness of the problem can be better understood by communicating with other involved parties including the bank, the government, investors, and clients. A long term solution can include investing in the bank, buying assets from the bank, coordinating with other VCs to ensure no one panics and a bank run won't happen. He made a bad situation worse by jumping straight to pulling all his companies' money and telling everyone else to do the same. He basically dumped water on a grease fire then ran out of the house screaming without ever bothering to look for a fire extinguisher.

hn2017 4y ago

The apologists here are not surprising

mattlutze 4y ago

> What would you do if you were a board member of multiple companies and you found out their bank was financially unsound and couldn't do normal bank stuff? Founders Fund has investments in some of the largest internet age companies that exist. Airbnb, DeepMind, Lyft, Facebook, Flexport, Palantir Technologies, SpaceX, Spotify, Stripe, Wish, Neuralink, Nubank, Twilio. A call for them to move their money out of SVB meant putting pressure out on a massive percentage of SVB's customers by value. It's not clear at all from news reports why Founders Fund put the call out. Fast Comapny's article notes that SVB had north of 32B in net assets before the run that Thiel's fund started. IF FF had the facts wrong, this collapse would demonstrate the effect of a few poeple's outside influence in SV, and should be a warning to the broader industry of the power that these investment vehicles are wielding.